Schmidt says Google still scratching head over YouTube profits

Google CEO Eric Schmidt likely surprised few by confirming Wednesday that his company's video-sharing powerhouse YouTube isn't quite throwing off lots of cash.

It was obvious from Google's earnings reports that YouTube has yet to generate material income. Still, it's worth noting, 18 months after Google acquired YouTube for $1.65 billion, the company has acknowledged that it hasn't "figured out the perfect solution of how to make money."

"We're working but have not yet in my view gotten a breakthrough around monetization," Schmidt said during an interview for CNBC. "We're working on that. That's our highest priority this year."

Schmidt also indicated that the company is coming out with new modes of advertising.

"We believe the best products are coming out this year," Schmidt said. "They're new products. They're not announced. They're not just putting in-line ads in the things that people are trying...Google believes that advertising itself has value. The ads literally are valuable to consumers. Not just to the advertisers, but the consumers."

Google CEO Eric Schmidt

(Credit: Elinor Mills/CNET News.com)

In-line ads are the text ads you see around video players. Google has also experimented with overlay ads that pop up within the video player itself for a few seconds. I wrote last year that I didn't think the ads were too obtrusive. TV networks have used overlays for years to battle TiVo users skipping past commercials. Audiences are already used to them.

Plenty of people disagreed with my assessment of the overlay ads.

But I'm expecting Google to be more aggressive with advertising at YouTube this year. Right now the company is providing a free video-hosting service to hundreds of millions all over the world (more than 10 hours of video is uploaded to YouTube every minute).

Google and YouTube are paying what many believe are millions in bandwidth costs every year. They have every right to be compensated.

I also think the longer Google takes to get users accustomed to some form of advertising, the harder it will be.

[gsmiller88]

If YouTube isn't making money by now...

Then unless they completely overhaul their advertising strategy,
there's no hope.

[dhavleak]

"They have every right to be compensated"

For the amount of copyright violations on YouTube, the media companies must be thinking the same thing.

Google has about as much "right to be compensated" as the artists whose stuff ends up there. Perhaps less.

No business has a "right" to compensation. They either have successes, or failures, or something in between. Google search would be a success (a resounding one at that). YouTube has potential, but it's also a legal ticking time-bomb.

[cube3]

correct..

the myth of web 2.0 free user -stolen- generated content is soon to implode in mass 2000 bubble proportions.

[onlyauser]

$5 bucks a month? I would pay it right now!

YouTube is great and IMHO it's value could easily command a subscription fee structure.

[sandonet]

Subs work only for a tiny number

Subs don't work, at least not for entertainment sites. I can think of only one other (profitable) high-profile site charging a subscription fee for video and that's MLB.com.

YouTube has to make an ad-model work.

[Rusty Digital Marketing]

YouTube audience not interested in Ads

I think Google's pushing it up hill on this one.

Ever tried advertising on YouTube? I have run campaigns which include YouTube and the results are incredibly disappointing.

People go to YouTube to see the latest dancing-dog video, or some politician having a "miss-spoke" moment. The content is all they look at - adverts on the site get very little click-through.

It simply is not an environment which people go to seeking information!

Digital Marketing Blog

[timber2005]

Agreed

Although maybe if I'm there for a short video, an advertisement won't affect me much, but I'd rather see Youtube try to get some contracts with bid media such as CBS, NBC, ABC and put their shows on Youtube. Youtube provides the BW, CBS pays to have their show on Youtube in High Quality (which is in the works). Youtube is fast, simple interface (compared to the "ALL FLASH" site with the "need to download our video player to watch" players CBS, NBC, ABC use) and has millions of viewers as it is. AND, this opens it up to not only those who can catch it on the air, but hey, iPhone, iPod Touch, the Wii... they all have access to Youtube!

Yeah iTunes has all the episodes but at $2 each?

[Talinus]

No one, anywhere is interested in ads

The trick for Google and every other company trying to get
money from C while showing B to A, is to disguise the ad in (or
as) the content. One, distinct ads are easily filtered by even the
least savvy consumer. Advertisers know this and pay
accordingly. Two, product placement can't be ignored or,
sometimes, even detected. When Joe Public watches the latest
dancing dog video, one of the related videos will be this
adorable kitten that juggles fuzzy dice wearing a blindfold with
a can of Sprite on the table in the background.

[xcgeek]

Watch Ad for Higher Quality

I'd put up with a short ad spot before certain videos if I could get a higher quality version. No Ad = low quality, Ad = High Quality.

People go to YouTube to be entertained, they are passive content consumers and so in this situation the only ads that people pay attention to are something they cannot ignore - ie ad spots before the video.

[mattumanu]

Youtube limits user innovation...

I can tell you how youtube and google has failed. There should already be feature length and 1 hour user generated content available on youtube, but the right now the longest you video you can make is 10 minutes. By allowing outside pressures to dictate what they can and cannot allow, youtube has doomed itself to failure.

Right now, google wants to monetize ten minute videos. This isn't going to cut it. I made a number of videos for youtube, but in almost every case I found myself unhappy with the ten minute limit. Sure I can splip longer content up into parts, but what I found is that even if you link the first part to the second part, the number of views for the second part nearly always lower than the first.

With Vimeo, on the the other hand, I can release longer format content with better quality. And what's more, I can instantly monetize the content by selling passwords to protected content I uploaded, among other things.

Either way, youtube is waste. With each change they make it becomes less appealing.

[TOKiBiz]

Based on revenues of $90 million and $3.5 million monthly server costs the EPV for YouTube is $0.06 and the Bizak Estimate is $318,000,000.